Monday, April 30, 2012

Innocent enough to be dangerous...

As an established, and most fortunate, firm, taking the best possible care of our existing clientele is our number one priority... I.e., we're no longer beating bushes to find new customers (that said, we will always take on our established clients' clients, extended family, close friends, business associates, directors, officers and board members [I suppose that's a bit short of bush-beating])... On occasion therefore, we find ourselves pressed to find other advisors to whom we can refer the prospect we really shouldn't take... I.e., while we may not be a good fit for the soul who wanders through our doorway, somebody out there is, and we'll never leave the wanderer without direction... The problem is, that 'somebody out there' is generally going to be somebody building a practice; i.e., somebody who'll work with anybody with a pulse and a pin number... And therefore, somebody whose chief concern could very well be next month's rent payment... Thus our challenge is finding the investment professional who isn't principally out to make a buck... We're in search of the advisor who's simply looking for people to help, who understands that putting his/her clients' needs ahead of his/her own is how one builds a successful practice...

In the olden days that was about it; when we'd find someone - sufficiently knowledgeable of course - with the requisite ethics, he'd get the referral... But these days, alas, we have an additional concern that, while less idealistic, is every bit as critical (in terms of whether he'll get the nod): Does the prospective adviser suffer from that client-portfolio/advisor-career destroying delusion; the belief that one can, with long-term success, time the market? Does he not indeed know what he can't know? Does he not know that the market makes no concession for cockiness? I.e., does he possess humility?

I blame the advent, and the fervent, of financial television for bringing a bravado to our business the likes of which I never imagined... We investment counselors were once a humble lot - our mantra; "anyone who says he can time the market is either a fool or a liar"... But, alas, today's media brings us daily doses of dunderheads and deceivers - in high definition no less... Turning would-be fine investment consultants (not to mention consumers) into dunderheads themselves...

This was recently brought home to me yet again (it's happened before) while discussing with a prospective advisor the prospects for us referring him prospects... He happened to be a fine, very sharp, well-mannered, seemingly honest young gentleman (you know you're getting old when you call a 40ish guy "young gentleman")... I was at one point encouraged; he works with an independent firm, no inventory of stocks to sell, no proprietary mutual funds, initials behind his name - the whole nine yards... But, alas, as I was on the verge of signaling that he is to anticipate the occasional referral, he dropped what I suspect he thought was the clincher, but unfortunately for him (fortunately for the vagabond prospect), it turned out to be the killer; he began telling me how he timed, with surgical precision, some recent correction with his clients' money... I believe he rambled on with all the detail, but he lost me at "I timed the corre"... That's the moment my heart sank and my brain went into how-to-end-conversation mode; for I knew the name I just crossed off my list belonged to either the unluckiest (and innocent) of advisors (if his story's true, his clients are doomed, for he'll think he can do it again) or one who's just plain dishonest...

Assuming the former; I could have tried to educate him on the ills, the risks, the impossibility of market timing, but how can I compete with the entertainers on CNBC? He'll need to learn for himself... He'll need to study the empirical evidence (there's loads), and to take note of today's prognostications - then follow the prognosticators going forward... It shouldn't take long before he begins to get it; for every single one of them (no exceptions!) will prove themselves wrong over and over again... That is they'll be right (lucky), then wrong, then wrong, then wrong, then right (lucky), then wrong, then wrong and so on (and those would be the success stories)...

And we'll say a prayer for his clients in the meantime...

Here are a few links to past columns on market timing... Take note of the dates, particularly the first - the Dow closed that day at 8,763...